Defined benefit pension plans are retirement plans in which an employer promises to pay a specified monthly benefit to employees upon retirement. The benefit amount is usually based on a formula that takes into account the employee’s salary and years of service.

Defined contribution pension plans are retirement plans in which employees contribute a portion of their salary to their individual retirement accounts. Employers may also make contributions to these accounts, but the ultimate benefit amount is based on the performance of the investments in the account.

The shift from defined benefit to defined contribution pension plans was largely driven by the desire of employers to reduce their financial risk and liabilities. Defined benefit plans became increasingly expensive to maintain, especially as life expectancies and healthcare costs rose. Defined contribution plans shifted the investment and longevity risk from the employer to the employee.

Some advantages of defined contribution plans include greater flexibility for employees to manage their retirement savings, portability if they change jobs, and the potential for higher returns based on investment performance. Employees also have more control over their retirement savings compared to defined benefit plans.

Some disadvantages of defined contribution plans include the risk of market fluctuations impacting the value of the retirement account, the responsibility for making investment decisions falling on the employee, and the possibility of outliving one’s retirement savings if not managed properly.